In Depth

The Indiana Court of Appeals split Monday in a probate suit involving whether trustees failed to distribute a portion of
the trust corpus in a timely manner. The majority upheld finding the trustees liable, but ordered a re-evaluation of compensatory
damages and attorney fees.

Brothers Harrison “Nick” Eiteljorg II and Jack Eiteljorg were the remainder beneficiaries of a trust their father
set up effective upon his death in 1997. Their mother, Sonja, was designated sole beneficiary; she died in 2003. Nick, his
stepson Roger, and accountant John Lienhart were co-trustees of the trust.

In October 2004, the parties met to discuss the distribution of trust property, which consisted of $6.5 million, including
$3.2 million in liquid assets. Nick wanted he and his brother to receive $2 million total, but Lienhart disagreed because
he was worried about any remaining estate tax that may be owed. Roger and Lienhart suggested distributing only $1 million
total, which Nick rejected and later stormed out. The dispute led to a petition to probate court to remove Lienhart and Roger
as trustees. Nick and Jack filed notice raising 13 claims of breach of trust, but Judge Charles Dieter only found they breached
two duties and ordered immediate distribution of $1.5 million, which included about $300,000 in non-liquid assets, to Nick
and Jack.

Judge Dieter died before he could rule on the issue of damages, so Judge Tanya Walton Pratt concluded that the relevant damages
period lasted from October 2004 to October 2007 when the trust was wrapped up. She awarded Nick more than $150,000 representing
lost earnings from an investment opportunity and awarded Jack more than $110,000 in lost profits from his missed real estate
deal. She also awarded them more than $353,000 in attorney fees.

In In the Matter of the Trust of Harrison Eiteljorg, No. 49A02-1005-TR-485, Judges Nancy Vaidik
and Michael Barnes upheld Judge Dieter’s finding that John and Roger breached their duty to administer the trust according
to its terms, but they found Judge Pratt erred in her assessment of damages. They should not have been allowed to recover
damages for their lost investment opportunities under Indiana Code 30-4-3-11(b)(3) because that section applies to profits
lost to the trust corpus due to a trustee’s misuse, not to allow beneficiaries to recover for individual profits they
would have allegedly generated on their personal shares but for the trustee’s failure to timely distribute, wrote Judge
Vaidik. The issue here is more like a claim for conversion.

Nick and Jack were deprived of the $1.2 million ordered by Judge Deiter for only 9 months, so they are only entitled to interest
for those months. Any assessment of compensatory damages beyond that point is erroneous, she wrote. The majority also reduced
the attorney fees to $150,000 based on the record.

Judge John Baker dissented on the issue of whether Lienhart and Roger committed a breach of the trust. He noted that Nick
originally rejected Lienhart and Roger’s distribution proposal. Lienhart had many years of experience as an accountant
and believed that the $2 million he wanted to hold back for taxes was appropriate. When the dispute arose, Lienhart and Roger
petitioned for instructions from the probate court, and once instructed, they immediately made the distributions as ordered.

“In my view, to penalize John and Roger for doing that which we consistently direct trustees to do — and which
they are statutorily entitled to do — is misguided and contrary to law,” he wrote.

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